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Minnesota Fact Sheet Household Tax Compliance Tips

HOMEWORK SOLUTIONS IS HERE TO HELP!

Payroll tax compliance for your new employee does not need to be terrifying, time consuming or expensive. HomeWork Solutions is a nationally recognized “household payroll” service company, providing household employers nationwide with trusted and time saving payroll and payroll tax solutions.

WORKER CLASSIFICATION IS THE KEY

You become a household employer when you hire an individual to perform duties and provide services under your direction in your private home. Generally, these workers are your employees, not independent contractors. Failure to properly classify the worker and make the appropriate employment tax filings and payments is considered tax fraud by the IRS.

PAYROLL TAX RESPONSIBILITIES

You are responsible for federal employment taxes when you pay household workers as little as $1,000 in a calendar quarter or when you pay any individual employee age 18 or over $2,700 in a calendar year.

You have both Federal and State tax filing responsibilities. Federal employment taxes are reconciled with the household employer’s annual Federal Income tax return. Your state may require quarterly unemployment tax filings, as well as reports and remittance of state income taxes withheld, if applicable. Employee wages are reported to the Social Security Administration. Your employee is due a W-2 form in January.

Social Security and Medicare Taxes

The household employer is responsible for the payment of all Social Security and Medicare taxes to the IRS. You may choose to either collect your employee’s taxes via payroll deductions or fund these taxes yourself.

Unemployment Taxes

You will make contributions to the IRS and Minnesota to fund unemployment and worker re-training programs.

Income Taxes

Federal and state income taxes are ultimately the responsibility of the household employee; however, best practice is to deduct these taxes from your full time employee’s wages to help them avoid owing large sums when they file their annual income tax returns.

OTHER LEGAL RESPONSIBILITIES

Verification of Work Eligibility

All U.S. employers are required to verify a candidate’s employment eligibility using Form I-9.

Fair Labor Standards Act (FLSA) Compliance

Maintain accurate and contemporaneous records including time tracking, gross pay calculations, and detailed records of all deductions from the employee paycheck.

Pay no less than minimum wage on an hourly rate basis.

Health Insurance

You are not required to provide employee health insurance, however there are financial and retention advantages to contributing some or all of your employee’s health insurance premium. HWS is happy to discuss this with you.

MINNESOTA LABOR LAWS

Minimum Wage

Minnesota defers to the FLSA, which requires that all domestics, including companions, be paid at no less than the greater of the state or federal minimum wage.

Minnesota minimum wage is $8.85/hr.

Minneapolis minimum wage is $14.50/hr.
St. Paul minimum wage is $12.25/hr.

Overtime Pay

All live-out workers are to be paid an overtime differential of 1.5 times the hourly wage for hours over 40 in a 7 day week. Live-in domestics, including companions, must be paid the overtime differential for hours over 48 in a 7 day week. Overtime or premium pay is not required for hours worked in excess of 8 per day or on weekends or holidays.

Paid Time Off

Minnesota does not mandate any paid time off for non-exempt workers.

Minneapolis requires paid sick and safe time for employers with 6 or more employees. For such employers, sick and safe time accrues at a rate of one hour for every thirty hours worked. Employees begin accruing sick and safe time on their first day of employment, but can only use their accrued time 90 days after they started working. You may cap an employee’s accrual at 48 hours per year. You may also limit the total amount of unused sick and safe time in an employee’s “bank” to 80 hours during subsequent years. You may front load 48 hours for the first year of the employee’s employment and 80 hours each subsequent year in place of the accrual system. You do not have to reimburse employees for their accrued sick and safe time upon termination.
St. Paul requires that, for every 30 hours worked, employees accrue 1 hour of earned sick and safe time. Employees begin accruing sick and safe time on their first day of employment, but can only use their accrued time 90 days after they started working. Earned sick and safe time may be capped at 48 hours per year, and total sick and safe time may be capped at 80 hours. Carryover of hours from one year to the next must be allowed, as long as the hours are within the caps. You may provide at least 48 hours up front following the initial 90 days of employment and at least 80 hours for each subsequent year in place of the accrual system. You do not have to reimburse employees for their accrued sick and safe time upon termination.

Mileage Reimbursement

The federal government establishes and updates a maximum rate for non-taxable mileage reimbursement each year. The current rate is $0.67 per mile.

Payroll Frequency

Minnesota allows you to pay your household worker daily, weekly, bi-weekly or semi-monthly, or monthly. Pay upon voluntary separation is due on the next scheduled pay date. Pay upon discharge is due immediately.

Payroll Documentation

A written notice is required for each employee and anytime the employment relationship changes. We have a notice template available here.

Each time you pay an employee, you must provide them with a statement of wages that includes the name of the employee, the hourly rate of pay, total hours worked, gross wages, a list of deductions made from the employee’s pay, net wages, the date on which the pay period ends, and your legal name and your operating name (if it is different from your legal name).

Minneapolis requires that sick and safe time hours accrued and unused must also be on the statement of wages.

Employment Contract Requirements

Minnesota does not have employment contract requirements. However, a free sample work agreement can be found here.

Workers’ Compensation Insurance

Minnesota requires household employers paying $77/week or more to obtain Workers’ Compensation Insurance. HWS ALWAYS recommends obtaining a Workers Compensation Insurance policy for the protection it provides in the event of a work-related injury sustained by your employee. A policy can usually be obtained easily and cost effectively by contacting your Homeowner’s or Renter’s Insurance provider. HWS can help you obtain this insurance through our insurance partner (just give us a call).

State Unemployment Insurance

Minnesota requires a new employer state unemployment insurance tax of 1.0% for the first $42,000 wages paid to each employee. This may vary if you have previous employees.

Frequency of Tax Filings

Minnesota requires quarterly tax filing for unemployment insurance and quarterly or annual tax filing for income tax withholding. HWS recommends filing quarterly.

HWS WILL HELP YOU DO THE RIGHT THING

HWS knows that most families want to pay their household employees legally and ensure that the employee receives workers compensation and unemployment insurance protections. You also want to establish a principled relationship with your employee who is caring for and interacting with precious family members. Getting the relationship started on the right footing, including complying with legal and tax formalities, helps set the tone for the relationship.